Social Security Tax Rates

Will I Be Taxed on Social Security and Disability Benefits?

Disability benefits are subject to taxation and the rules for disability benefits are the same as those of regular Social Security benefits. However, because of the SSI income limits, almost no SSI beneficiaries earn enough to owe income tax.

If the disability reward you have received after becoming injured or disabled and working for at least a year is your only source of income, your reward will not be taxed. Receiving income from a spouse, pension plan or interest payments on investments will open you up to your benefits being taxed.

How Your Taxes are Calculated

Your gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income”

Tax Breakdown

  • Are your single? Add your income and half the disability money. If this is more than $25,000 – $34,000, then up to 50% of your benefits are taxable. If your total is higher than $34,000, then up to 85% of the benefits will be taxed.
  • For married couples filing for taxes together, if your combined income plus half the benefits equals $32,000 to $44,000, up to 50% of your benefits are taxable. When your combined income plus half of the benefits equals an amount between $32,000 and $44,000, up to 50% of your benefits are taxable. If you and your spouse make more than $44,000, up to 85% of your benefits will be taxed. And if you are married but filing separately and your total comes to $34,000 a year, up to 85% of your benefits can be taxed.

Example Breakdown

An example of a scenario could be: You are married and living with your spouse. Together, you make $25,000 and receive $20,000 in disability aid per year. Your income plus half of the benefits (25K + 10K) equals $35,000, which is $3,000 over the limit for married couples. The means that a portion of the $3,000 of your total income is subject to taxes.

The Bottom Line:

If you have to pay taxes on your assistance, it won’t be much. It will come to around 10 to 15% in the 50% bracket, and 30 to 35% in the 85% bracket. The tax rate is the same used for your other income.

For each year you receive aid, in January you will be delivered a Social Security Benefit Statement called the SSA-1099. If you do have to pay taxes on your Social Security assistance, you can use this benefit statement when filing your federal income taxes to see if your reward is subject to taxation. If it’s easier for you, you can have your taxes withheld from your benefits.

Back Pay

Very few people collect aid as soon as they need it. That’s why the SSA provides back pay to its recipients to make up for lost time. Back pay and regular pay are given all at once, and this can cause a spike in your normal income. To avoid losing part of your back pay to higher taxes, you are allowed to apply the back pay that you should have gotten a year or two ago, to prior tax returns, lowering your income for the year you receive the lump sum. Each year you get a SSA-1099, your lump sum will be listed separately alongside the total amount paid for that year. Rather than requiring you to file amended returns for those years, the IRS lets you take care of it on your current tax return, using previous years’ income amounts.

Most states exempt Social Security benefits from your tax liability. Although some benefits are taxable, the amount of taxes this comes to is minimal. It may seem defeating that the help you get is taxed, but everyone has to pay taxes so you are not alone. Knowing how the tax method works is reassuring and allows you to be on top of your finances!

If you would like more information about the taxation process or have any questions about your disability benefits, please call us at 1-800-248-1100 to discuss your claim.